Monday, March 4, 2013

Richard Rahn, a clear, level-headed thinker, wrote a nice article in The Washington Times last week titled "Ending the Corporate Tax." I like it because it neatly summarizes all the pros (which are few) and cons (which are many) on the issue of whether corporations should be taxed, in a way that just about anyone can understand. It's an important issue, especially as Washington these days is torn between those who want more taxes to fund even more government and those who want less government and lower taxes, while the most pressing concern is finding the best way to foster a healthier economy with more jobs. Here's an excerpt:

Economists dislike the corporate income tax because it reduces productive labor and capital and is an additional tax on income that has already been (or will be) taxed. Politicians love the tax because it is largely invisible to most voters.

If a corporation has to pay higher income taxes, it will have less money for research and development, expansion and job creation. The money invested in corporate stocks has already been taxed at least once when it was earned, and it will be taxed again when it is paid out in dividends or sold for a capital gain. How many times should the same income be taxed?

Ask yourself, who is likely to spend the money in a way that will bring more human satisfaction and create more jobs — corporate executives trying to make money by producing goods and services people want, or politicians and government bureaucrats trying to enhance their own power?

As most good economists and knowledgeable others understand, the world would experience a better allocation of resources and more job creation if the corporate income tax was abolished. Fights over which jurisdiction gets to tax and how much it can tax would disappear. The so-called revenue loss would be made up by taxes on the dividend and capital gains increases, and by the extra economic growth and employment that would result from ending the corporate tax.